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Indian Hotels: On path to recovery - Views on News from Equitymaster
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Indian Hotels: On path to recovery
May 27, 2010

The Indian Hotels Company Limited has announced its FY10 results. The company has reported a 9% YoY and 34.6% YoY fall in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Net sales for FY10 fell by 9% YoY on the back of the economic slowdown and terror attacks.
  • Operating (EBITBA) profit dropped by 22% YoY during the quarter. This drop is due to higher raw material costs and other expenditure as a percentage of sales.
  • Net profit dropped by 35% YoY during the year. The fall in profits is due to lower operating profits, lower other income and higher interest expense partly offset by lower tax expense.


Standalone financials
Rs m FY09 FY10 % Change
Net sales 16,196 14,733 -9.0%
Expenditure 11,322 10,930 -3.5%
Operating profit (EBDITA) 4,874 3,803 -22.0%
Operating profit margin (%) 30.1% 25.8%  
Other income 870 437 -49.7%
Interest (net) 892 1,529 71.4%
Depreciation 944 1,041 10.3%
Profit before tax 3,907 1,670 -57.3%
Extraordinary item (284) 512  
Tax 1,283 652 -49.2%
Profit after tax/(loss) 2,340 1,531 -34.6%
Net profit margin (%) 14.5% 10.4%  
No. of shares (m) 723 724  
Diluted earnings per share (Rs)*   2.1  
Price to earnings ratio (x)*   46.8  
* On a trailing 12 months basis

What has driven performance in FY10?
  • After fall in sales by 20% YoY for the first half of the year, the company ended the year with a fall of 9% YoY. This is due to the improvement in economic environment with which the fortunes of the hospitality sector are tied also seems to be improving. The company witnessed normalization of occupancy as well as demand in the second half of the year which helped arrest sales decline. However, the net sales could have been higher but for the closure of 287 rooms in Taj Mahal Palace & Tower which are undergoing renovation.

    Cost break-up
    As a % of net sales FY09 FY10
    Total Cost of goods 7.1% 7.6%
    Staff Cost 24.0% 24.2%
    License fees 5.9% 6.1%
    Fuel, power & light 6.0% 6.8%
    Other Expenditure 27.0% 29.5%

  • IHCL's operating (EBITDA) income fell by 22% YoY. This was due to higher operating costs as a percentage of sales witnessed during the year. Operating margins subsequently fell to 25.8% during the year, as compared to 30.1% in FY09. These margins were however better than 15% that the company had earned in 1HFY10.

  • IHCL's profits declined by 35% YoY during the year on the back of lower operating income, lower other income and higher interest expense. However, the profits could have been lower but for extraordinary gains in the form of profit from sale of investment, profit from sale of hotel project and refund of annuity pension premium. When adjusted for extraordinary income, net profit is seen to decline by 61% YoY

What to expect?
At a price of Rs. 99, the stock is trading at 48.6 times our estimated FY12 earnings. While the results look bad, there is an improvement in business since September 2009. However, the stock price has run up a lot recently. For this reason we are cautious on this company.

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